Question

Safe and Secure, Inc. produces three models of home security systems. Information on the three products is glven $443700 $739500 $305000 221850 295800 Variable expenses 213500 Contribution margin 221850 443700 Fixed expenses 91500 177200 343300 141300 44650 $100400$49800) Net income Fixed expenses consist of $443000 of common costs allocated to the three products based on relative sales, and additional fixed costs of $44900 (Assurance), $120200 (Decoder), and $53700 (Burglar Beware). The common costs will be incurred regardless of how many models are produced. The other fxed expenses would be eliminated if a model is phased out Matt Dillon, an executive with the company with extensive law enforcement background, feels that the Burglar Beware line should be discontinued to Increase the company's net income.

Answer 1

If the company continues Burglar Software line,

		Assurance	Decoder	Burglar Software	Total
Sales	A	$    4,43,700	$    7,39,500	$              3,05,000	$ 14,88,200
Variable Production Costs	B	$    2,21,850	$    2,95,800	$              2,13,500	$    7,31,150
Contribution	A - B	$    2,21,850	$    4,43,700	$                  91,500	$    7,57,050
Fixed Expenses Allocated		$ 46,966.67	$ 46,966.67	$            46,966.67	$    1,40,900
Fixed Expenses- Specific		$    1,29,800	$    2,89,500	$              1,01,600	$    5,20,900
Net Income		$        45,083	$    1,07,233	$                (57,067)	$        95,250

If the company discontinues

		Assurance	Decoder	Burglar Software	Total
Sales	A	$    443,700	$    739,500	$                           -	$ 1,183,200
Variable Production Costs	B	$    221,850	$    295,800	$                           -	$    517,650
Contribution	A - B	$    221,850	$    443,700	$                           -	$    665,550
Fixed Expenses Allocated		$ 70,450	$ 70,450	$                           -	$    140,900
Fixed Expenses- Specific		$    1,29,800	$    2,89,500	$                           -	$    419,300
Net Income		$        21,600	$        83,750	$                           -	$    105,350

{Note in case of discontinuance the common fixed costs shall be allocated equally between remaining departments}

As it is clearly evident from the results, if the company decides to discontinue Burglar Software department, the net income in total increase by $10,100. It should be discontinued.